FedEx Corp. and rival United Parcel Service Inc are raising shipping rates for customers at the fastest pace in nearly a decade, which begs the question if inflation is not “transitory” but rather structural.
On Monday, FedEx announced it would begin to raise shipping rates on Nov. 01. The bulk of the rate increases would occur throughout January by around 5.9% or 7.9%, depending on the service.
A company press release explained the new surcharge changes for FedEx shipping services:
*Effective Nov. 01, 2021, a fuel surcharge increase will be applied to FedEx Express (U.S. domestic package and freight services), FedEx Ground, and FedEx Freight shipments.
*Effective Jan. 17, 2022, FedEx Freight will introduce a No Shipment Tendered surcharge that applies when a pickup is performed and no shipment is tendered to the carrier.
*Effective Jan. 17, 2022, the International Out-of-Delivery-Area Surcharge and International Out-of-Pickup-Area Surcharge rates will be determined based on the corresponding tier of the ZIP code, postal code, or city of the shipment’s origin and/or destination location for International Express Freight and Parcel services.
*Effective Jan. 17, 2022, a Delivery and Returns Surcharge will be assessed on packages that are delivered or returned using FedEx Ground Economy services.
*Effective Jan. 24, 2022, Additional Handling Surcharge and Oversize Surcharge rates for U.S. Express Package Services and U.S. Ground Services will be determined based on the shipment’s zone.
As for UPS, 2022 shipping rate increases are expected to be announced in the coming weeks. WSJ quoted Transportation Insight LLC, a supply-chain management and logistics firm, who said both FedEx and UPS “will move in lockstep with their annual price increases since at least 2010.”
The above-average increase from FedEx and what’s likely to be announced by UPS shortly is more evidence that inflation is quickly spreading across the global supply chain and becoming structural.
“The carriers are incredibly bullish and confident that they are holding all the cards and that they have the leverage to squeeze more margin out of their customers than ever before,” said Trevor Outman, co-chief executive of Shipware LLC, a shipping consulting firm.
FedEx said the rate increase is due to a “challenging operating environment” and will allow it to continue investing in expanding its capacity, along with investing in innovative technologies.
This means that online sellers will either eat the extra shipping costs or pass them along to consumers amid the boom in e-commerce packages.
The combination of increased shipping rates and cost pressure from labor and other supply-chain inflation could lead some retailers to re-evaluate their online shipping policies and increase their subscription-based fees.
We can gather that inflation is becoming more sustained and may stunt business growth, thus increasing the risk of stagflation.
BofA’s Michael Hartnett recently told clients his macro backdrop for the second half is one of higher inflation, hawkish central banks, weaker growth, i.e., stagflation.
Some of the biggest names in the business warned last week at the annual Morgan Stanley Laguna conference that inflation is “unprecedented” and becoming “structural.”